Lingnan University (Formerly Known As Lingnan College) v. Alan Chung Wah Tang and Another

HCCW 614/1997

[2019] HKCFI 2749

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 614 OF 1997

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Before: Deputy High Court Judge William Wong SC in Chambers

Date of Hearing: 17 October 2019

Date of Decision: 8 November 2019

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DECISION

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1.This is the application of Lingnan University (formerly known as Lingnan College) (the “Applicant”), by a summons dated 22 July 2016 (the “Summons”) for the following orders:

“ 1.  The decision of the Respondent the Joint and Several Liquidators of the Company in rejecting the Proof of Debt of the Applicant Lingnan University in the above matters for the sum of HK$22,096,640.00 may be reversed and the said proof may be ordered to be admitted for the sum of HK$13,188,734.00; and

2.  The Respondent may be ordered to pay costs of and incidental to this application, to be taxed if not agreed.”

2.In Mr Ng’s Skeleton Submissions, the amount to be admitted is revised to HK$9,194,047.44.  The sum claimed by the Applicant is based on the revised final contract sum and the actual cost of rectification.  The details are as follows:

Item		HK$
Revised final contract sum		351,343,158.56
Retention Monies (for both the Company and its sub-contractor)		(9,229,500)
P&T’s previous certification		(339,558,620)
LD		(17,752,992)
Sub-total of sum owed by the Company to the University	:	15,197,953.44
Actual costs of rectification work		1,225,094
Retention Monies		(7,229,000)
Total	:	9,194,047.44

The applicable legal principles

3.It is well established that an application to the court under Rule 95 of the Companies (Winding-up) Rules is by way of a hearing de novo to determine the extent to which the applicant should be allowed to rank as a proving creditor.  The court is bound to decide the rights of the applicant in the light of all the evidence before it, and not merely to express a view as to whether the liquidators were right or wrong in rejecting the proof on the evidence available to the liquidators at the time.

4.The onus is on the applicant to show on balance of probabilities that a real debt was due to him.  In Trustee in Bankruptcy of Lo Siu Fai Louis v Toohey [2005] 4 HKC 51, Cheung JA at §§10 – 12 said:

“ 10. Rule 95 of the Companies (Winding-up) Rules provides that if a creditor or contributory is dissatisfied with the decision of the liquidator in respect of a proof, the court may, on the application of the creditor or contributory, reverse or vary the decision.

11. As correctly pointed out by Kwan J, an application to the court under this provision is a new hearing to determine to what extent the applicant should be allowed to rank as a proving creditor; the court is bound to decide the rights of the applicant in the light of all the evidence which is before the court, and not merely to express a view as to whether the liquidator was right or wrong in rejecting the proof on the evidence then available to the liquidator when he rejected it (Re Kentwood Construction Ltd [1960] 1 WLR 646 at 647 to 648).

12. Further, the onus of proof is on the applicant to show on a balance of probabilities that a real debt is due to him, see Re Adam Holdings Ltd [1985] 2 HKC 608 at 613B to G.”

Background

5.The Applicant, qua employer entered into a main contract (the “Contract”) with Wan Hin and Company Limited (the “Company”) as the main contractor based on the 1986 RICS standard form, for the construction of the Applicant’s new campus at Tuen Mun (the “Project”) on 13 April 1994.  The contract sum was HK$400,600,000.

6.The architect was P&T Architects and Engineers Limited (“P&T”) and the quantity surveyor was Levett and Bailey Chartered Quantity Surveyors (“L&B”).

7.According to the Contract, the completion date of the Project should be 21 June 1995.  However, due to delays by the Company, the Project was only completed, in sections, from 13 August 1995 to 9 September 1996.

8.On 21 July 1997, L&B sent a draft final account to the Company for agreement.

9.It is pertinent to note that after taking into account the extension of time (“EOT”) to the original completion date granted by P&T (ie 88 days up to 17 September 1995), L&B assessed that the amount of the liquidated damages (“LD”) should be HK$17,752,992.

10.P&T, the architect issued its Payment Certificate No 29 on 21 January 1998 which also certified the LD to HK$17,752,992.

11.On 30 March 1998, the Company was wound up by the court and the Respondents were appointed as Joint and Several Liquidators of the Company.

Analysis

12.Having gone through the contemporaneous documents and heard the parties’ submissions, I am of the view that the Applicant has discharged the relevant burden of proof. Its debt in the sum of HK$9,194,047.44 should be admitted.

13.First, in terms of contemporaneous documents, on 15 June 1998,L&B issued a revised final account.  In the revised final account, the amount of the LD was stated as HK$17,752,992 after taking into consideration of 88 days of EOT granted.

14.In the Valuation of Work No 29 issued by P&T, the architect,it was also certified that:

“ $17,752,992.00 being the Liquidated and Ascertained Damages due to delayed completion in accordance with the Employer’s instruction under his letter dated 19/12/97 with detail breakdown as per Appendix A.”

15.Appendix A then comprehensively sets out the detailed calculation of the LD.

16.Further, in P&T’s Payment Certificate dated 20 January 1998,it is recorded that the LD is HK$17,752,992 and the total retention money is HK$9,229,500.

17.In a letter issued by L&B on 5 September 1998, it is recorded that:

“ Please note that a series of final account meetings had been held with the ex-employees of your company and claim consultants acting on behalf of your company with the latest meeting backdated to 9/2/98 which was held on a without prejudice basis‌….We had ensured that the latest revised draft final account had been taken into consideration all the information know to us and substantiation from your company (via numerous final account meetings and exchange of information including measurement details with your company) and all additional works item, confirmation of verbal instructions etc, finally verified and confirmed by the Architect as constituting contract variations.”

(emphasis added)

18.On 27 July 1998, the project manager, Crow Maunsell Management Consultants Ltd (“CMMC”) stated that they have no adverse comment to the revised draft.

19.On 28 July 1998, P&T, the architect, stated that:

“ With reference to your draft final account dated 15/6/98, we write to advise that we do not have comment on your draft final account. Please note that the project team is replying [sic] on your professionalism to ensure the correctness of your valuation on the variations of this contract.”

20.On 14 October 1998, L&B stated that:

“ Please note that PTAE and CMMC have confirmed that they have no comment to the same under PTAE’s letters ref. 2538 dated 28/7/98 and ref. 2538 (IW) dated 24/8/98 and CMMC’s letter ref. MSL/al/8050/11.10.0313 dated 20/7/98 respectively.”

21.Mr Ng for the Applicant also pointed out to this Court that in fact, in a letter dated 10 February 1999, Mr Alan Tang, one of the Joint and Several Liquidators, had in fact agreed on the final contract sum (subject to the exclusion of contra charges in the amount of HK$2,360,221.74).

22.In view of the above contemporaneous documents, I agree with Mr Ng for the Applicant that all the professionals who had first hand and personal knowledge of the Project have confirmed the amount of the LD owed to the Applicant.  They had discussed with the Company’s employees and claim consultants before they concluded the final account and their assessment of the LD.

23.In SGL Carbon Fibres Ltd v RBG Ltd [2012] CSOH 19 at §24,Lord Glennie said:

“ It does not follow from the non-binding nature of the project manager’s assessment and payment certificate that they are to be ignored when it comes to working out the final account, or when one or other party seeks to recover more or recover back sums already paid. In terms of cll.50 and 51, the sum assessed and certified by the project manager becomes due at the particular assessment date. Unless corrected by him by a subsequent assessment and certificate (under cl.50.5), or by an adjudicator or arbitrator exercising powers of review and revision (under option W2), that sum, and only that sum, remains the sum which was due at that date, and the cumulative PWDD on the basis of which that sum was certified remains the cumulative PWDD as at that date. That sum certified to be due at any particular assessment date is, and remains for the purpose of future calculations unless corrected by the project manager (or the adjudicator or arbitrator), the sum which is to be regarded as having been due at that assessment date. Any party wishing to have a prior assessment corrected must at least bear the burden of persuasion.” (emphasis added)

24.Mr Chu for the Joint and Several Liquidators first submitted that there is no final certificate issued by P&T, the architect, to certify the amount due to the Applicant.  This is in fact the Joint and Several Liquidators’ main submission.  However, I am of the view that this is neither here nor there.  Mr Chu in fact correctly stated that even if there is a judgment, the Joint and Several Liquidators are entitled to look behind the judgment to assess whether a debt is legitimately due or not.  A final architect certificate will certainly help the Applicant’s case.  Nonetheless,the duty of the Court is to assess all the evidence available before it in order to determine, on a balance of probabilities, whether the Applicant should be allowed to rank as a proving creditor.

25.Further, Mr Chan of L&B confirmed on oath that the reason why no final certificate was issued was that after the winding up of the Company, “the liquidators of the Company did not confirm the acceptance of the revised final account and the matter was left hanging in the air.”  (See §9 of the Affirmation of Chan Choi Hing.)

26.In any event, Mr Chan, the director of L&B at the relevant time, formally signed the final account and confirmed on oath that L&B was at all material times satisfied with the truth and accuracy of the revised final account.

27.Secondly, Mr Chu for the Joint and Several Liquidators submitted that there was late delivery of area C which caused delay in the completion of the Project, hence the Applicant is not entitled to claim the LD against the Company.  In view of the evidence, I am of the view that there are no merits in such argument:

(1)  The Company had by its letter dated 14 October 1994 confirmed that it was in a position to accommodate any delay in handover of area C until 18 October 1994.  It subsequently applied for and was granted by P&T an EOT of 45 days.  There is no good reason why the Applicant is not entitled to claim the LD after taking into account the EOT granted to the Company.

(2)  In a letter dated 29 October 1997, P&T set out the reasons for the granting of the EOT and stated, inter alia, that:

“ Moreover, based on your progress at that time in other part of the site, we can predict that there will not be major difference to the progress of your works even if you were granted the Section C area earlier than 17/10/94.

In view of the above, we recommend 45 days shall be granted for the period of 17/4/94 to 1/12/94.”

(3)  Further, in a letter dated 26 June 1995 from the Company to P&T, it is recorded that:

“ Further to our previous notification of delay under our letter ref. 230/QS-0015-95 dated 11 January 1995, we would hereby apply for an extension of time for a period of 45 days due to late possession of Section C of site 1 in accordance with Clause 23(2)(e)of the Conditions of Contract by reason of Architect’s instruction issued under Clause 21(2) of the Condition of Contract regarding the postponement of any work to be executed.”

(emphasis added)

28.Thirdly, in relation to the allegation that as result of the Applicant’s exercise of its right to take sectional completion, the Company and its sub-contractors were disrupted in their access to parts of the Project’s building, thus making it impossible to complete the contract work on time, I am of the view that there is no substance in such complaint:  

(1)  I agree that this was actually agreed between the Applicant and the Company.  The original completion date was 21 June 1995.  However, the Company’s progress was not satisfactory. The Applicant scheduled to commence the new academic term in September 1995.  As a result, sectional completion pursuant to clause 16 of the Conditions of Contract was actually offered by the Company to mitigate the loss and damage.

(2)  In a letter dated 31 December 1998 from P&T, the architect, it is recorded that:

“ Referring to the sectional completion, Wan Hin offered sectional completion to the Owner to mitigate their delay and reduce damages.”

(3)  In any event, there was no evidence suggesting that sectional handovers, the purpose of which was to mitigate the Company’s delay, had somehow prevented the Project’s completion.

29.Fourthly, it was argued that the partial occupation of the Project’s building together with the issue of the Occupation Permit/ Temporary Permit constitutes substantial completion of the Project.  As such, the Applicant is not eligible to apply for the LD for the period after the initial occupation date.  I disagree:

(1)  Clause 4.02 of the Contract specifically provides that:

“ The Main Contractor shall note that the completion date shall not be assumed to be the time of receipt of the Occupation Permit or the time of occupation of the whole or part of the building.”

In my view, this is a complete answer.

(2)  The Court of Final Appeal in Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1 at §§13 – 16 held that “practical completion” as used in building contracts in Hong Kong was different from substantial completion and meant a state of affairs in which the works had been completed free from patent defects other than ones to be ignored as trifling.

30.Fifthly, Mr Chu for the Joint and Several Liquidators submitted that the rectification works were incurred outside the 12 months defects and liabilities period and some of the items were not related to rectification works but were mere maintenance works.  Mr Chu subsequently agreed that as no final certificate was issued, the time period to rectify defects is at large.  

31.Mr Ng for the Applicant submitted that the contractual provisions governing the time period to rectify defects cannot operate as exemption clauses on the Company’s liability to rectify defects after the expire of 12 months. I agree.

32.I also note that in a letter dated 31 December 1997 from P&T, the architect, it is recorded that:

“ …The Defects set out in the schedule have been outstanding for periods ranging from [6] months of [16] months and our labour records and defects rectification progress report indicate that you have hardly any personnel on site to rectify these defects. As a matter of fact, such inaction is clear evidence that you are not proceeding regularly and diligently with the same. Your persistent refusal and/or neglect in taking heed of our demands,written and oral, is much regretted.”

33.As to the quantum, I am satisfied that the Applicant’s claim is supported by:

(1)  a detailed documentation recording that the costs were incurred to rectify the Company’s defects;

(2)  internal accounting records showing that the costs were to be recovered from the Company; and

(3)  confirmation by its Campus Development Manager.

34.Sixthly, as far as the quantum of retention money is concerned,I am satisfied that the sum of HK$2,000,500 was related to nominated subcontractors and suppliers as shown in P&T’s Payment Certificate dated 20 January 1998.

35.Finally, I agree with Mr Ng for the Applicant that the report by Jean Peter Ho is inadmissible for want of an expert declaration as required by Order 38, rule 37C of the Rules of the High Court.  (See Joint & Several Liquidators of China Medical Technologies Inc v KPMG HCCW 435/2012, unreported, 24 February 2016; related appeal dismissed: [2017] 2 HKLRD 1091), at §§52 – 53; cf Re Loong San Investment Co Ltd [2014] 2 HKLRD 1116, at §§11 – 14 per A Chan J.)

36.I am also of the view that the report by Messrs George Berry & Partners prepared in September 1999 is of little probative value because they were instructed to give advice to the Respondents as to how to maximize the Company’s returns from potential recoveries. Crucially, there is no detailed analysis of the Applicant’s claims in the said report. 

Disposition

37.For all the reasons stated above, I make an order that:

(1)  the decision of the Joint and Several Liquidators of the Company in rejecting the Applicant’s Proof of Debt be reversed;

(2)  the Proof of Debt of the Applicant be admitted for the sum of HK$9,194,047.44.

38.I also make an order that costs are to be paid out of the assets of the Company and the Applicant’s costs should be paid in priority to those of the liquidators’ costs.  (See Re Tsz Wan Shan Ltd[2010] 4 HKLRD 291 at §8.)

39.Finally, it remains for me to thank Mr Ng for the Applicant and Mr Chu for the Joint and Several Liquidators for their helpful assistance to this Court.

Mr Tom Ng, instructed by Mayer Brown, for the applicant

Mr George Chu, instructed by Damien Shea & Co, for the respondents